Top challenges in selling a business and how to solve them

Selling a business is often seen as a natural end of the entrepreneurial journey, but in practice, it is one of the most complex and risky processes. Even successful companies face challenges at different stages of a deal, from document preparation to final closing. According to the CFA Institute, up to 70–90% of M&A transactions fail to achieve their expected outcomes, highlighting a high level of errors and underestimated risks. In this context, the key factor is not simply having a buyer, but ensuring proper deal structuring and preparation. In this article, we examine the main challenges in selling a business and how to address them effectively.

Challenge 1. Lack of preparation before going to market

Insufficient preparation is one of the most common reasons businesses lose value during a sale. Many owners enter the market too early, assuming key issues can be resolved during negotiations. In practice, this has the opposite effect: the later problems are identified, the greater their impact on deal terms.

Why unprepared companies lose value

An unprepared business creates additional risks for the buyer. If the company structure is unclear, documentation is incomplete, or financial reporting raises concerns, this directly affects valuation.

During due diligence, such issues almost always lead to revised terms. Buyers may demand a price reduction, additional guarantees, or adjust the deal structure in their favor.

The most critical factors include:

• Inconsistencies in corporate structure
• Lack of up-to-date contracts
• Mistakes in financial data
• Unresolved legal risks

Even if the business is fundamentally strong, poor preparation reduces its attractiveness and increases the likelihood of a price discount.

How to solve it

The solution is proactive preparation before going to market. Sellers should treat the process as a project that requires a dedicated preparation phase.

A key step is conducting an internal audit to identify and fix weaknesses before the buyer does. This includes reviewing corporate structure, financial data, and legal obligations. It is also important to prepare a complete data room in advance, which speeds up due diligence and reduces uncertainty.

Companies that complete this stage early gain a clear advantage. They move through due diligence faster, face fewer renegotiations, and ultimately achieve better deal terms.

Challenge 2. Incorrect business valuation

Incorrect business valuation is one of the most sensitive mistakes in a sale. An inflated price deters buyers and delays the process, while an undervalued one leads to direct financial losses for the seller.

The problem is that company value is rarely determined objectively. In many cases, it reflects the owner’s expectations rather than market realities.

Why sellers overestimate their company

Owners often overvalue their business based on past success or a subjective view of its worth. At the same time, risks, current market conditions, and industry specifics are often overlooked.

Another factor is a lack of understanding of how buyers assess a business. Investors focus not on historical performance but on future earnings and stability.

Common reasons for overvaluation include:

• Emotional attachment to the business
• Ignoring operational and legal risks
• Use of incorrect valuation multiples
• Lack of market benchmarking

As a result, the business may attract little interest or become stuck in prolonged negotiations.

How to solve it

The solution is to establish an objective, well-grounded valuation before going to market. Sellers need to view the business from an investor’s perspective, not just their own.

A key step is using market benchmarks and comparative analysis to define a realistic valuation range based on industry, company size, and risk level.

It is also important to prepare a clear financial story that explains the valuation. This should cover not only current performance but also growth potential, scalability, and long-term stability.

Companies that take a structured approach to valuation attract buyers faster and negotiate from a stronger position, as their pricing appears justified and transparent.

Challenge 3. Problems during due diligence

Due diligence is the stage where most deals are either reshaped or face serious issues. Even well-prepared companies can lose value at this point if risks or inconsistencies are uncovered.

In practice, a significant share of deals is renegotiated during due diligence, making this stage critical for risk management.

What typically goes wrong

The main issue is that due diligence reveals the true state of the business. Buyers gain access to detailed information and assess not only financials but also legal structure, contracts, and operations.

Most commonly identified issues include:

• Hidden liabilities or debts

• Errors or gaps in contracts
• Problems with intellectual property rights
• Inconsistencies in financial reporting

Even minor discrepancies can lead to revised terms. In some cases, buyers may withdraw entirely if the risk level exceeds expectations.

How to solve it

The key is to prepare for due diligence in advance rather than react to issues as they arise. In practice, this means conducting vendor due diligence, an internal review on the seller’s side.

This approach helps identify risks early, fix weaknesses, and organize documentation. It significantly reduces the likelihood of negative surprises during the buyer’s review.

It is also important to ensure transparency and well-structured information. A properly prepared data room with complete and organized documentation speeds up the process and reduces uncertainty.

Companies that pass due diligence without major issues retain their valuation and gain a stronger negotiating position, turning this stage from a risk into a strategic advantage.

Challenge 4. Finding the right buyer

Finding a buyer is not just about generating interest. In practice, the key task is to identify the right investor who can complete the deal on the agreed terms. Mistakes at this stage can lead to wasted time, deal failure, or last-minute renegotiations.

Why not every buyer is a good buyer

Interest from an investor does not guarantee a successful transaction. Many buyers lack sufficient funding, are not prepared for complex deal structures, or pursue goals misaligned with the seller’s strategy.

Risks also arise at later stages. Even after key terms are agreed, a buyer may fail banking checks, be unable to verify the source of funds, or withdraw for internal reasons.

Common issues include:

• Lack of confirmed financing 
• Strategic mismatch
• Prolonged negotiations
• High risk of deal failure

As a result, sellers may lose months working with unsuitable investors.

How to solve it

The solution is a structured approach to buyer selection. Sellers should assess not only the price but also reliability, motivation, and the investor’s ability to close the deal.

A key element is preliminary buyer screening, including analysis of financial capacity, reputation, and source of funds. This is especially important in cross-border deals, where AML and banking compliance requirements apply.

Working with advisors is also an effective strategy. They help build a pool of qualified investors and manage communication, allowing the seller to focus on serious candidates rather than unprepared participants.

Companies that engage only with vetted buyers significantly increase the chances of a successful closing and shorten the transaction timeline.

Challenge 5. Deal structure and negotiation risks

Even with the right buyer and an agreed price, a deal can end up less favorable than expected. The reason lies in the deal structure and terms negotiated, where risk is allocated between the parties.

Where sellers lose money

Sellers’ losses usually stem not from the headline price but from payment terms and additional obligations. Buyers seek to minimize their risk by shifting it to the seller through the deal structure.

This typically appears in:

• Deferred payments dependent on future events
• Earn-out mechanisms tied to post-sale performance
• Strict representations and warranties
• Extended indemnity obligations

As a result, the final amount received may differ significantly from the initial price. Some risks also remain after closing.

How to solve it

The solution is careful deal structuring that balances the interests of both parties. Sellers should assess not only the price but the likelihood of receiving full payment and the level of retained risk.

A key step is analyzing payment terms and limiting dependencies on future factors. If earn-outs are used, metrics, timelines, and calculation methods must be clearly defined to avoid disputes.

Legal provisions, including warranties and indemnities, also require close attention. Clearly defined liability caps and compensation terms help reduce the risk of unexpected claims after closing.

Companies that focus on deal structure, not just price, achieve more predictable and favorable outcomes.

Challenge 6. Legal and compliance issues

Legal and compliance risks are a major cause of deal failures or significant value reduction. Even with strong financials, issues in a company’s legal structure can put the entire transaction at risk. A key challenge is that many risks remain hidden for a long time and surface only during due diligence or when drafting transaction documents.

Hidden legal risks

In many companies, the legal structure evolves gradually and not always systematically. This leads to accumulated issues that may not affect day-to-day operations but become serious obstacles in a sale.

In practice, the most common issues include:

• Mistakes in corporate structure or ownership rights
• Outdated or inconsistent incorporation documents
• Tax risks or unresolved audits
• Missing licenses or permits

Such issues increase uncertainty for the buyer and almost always result in additional demands or price reductions.

How to solve it

The solution is to conduct a full legal audit before going to market. This helps identify weaknesses and address them before negotiations begin.

It is not enough to fix isolated issues. The company structure must be made clear and consistent. This includes updating corporate documents, resolving disputes, and ensuring compliance with applicable law.

It is also important to prepare the contractual framework, including key agreements and provisions that will be reflected in the SPA. This reduces the risk of conflicts during negotiations and speeds up the process.

Companies with a clean legal structure are perceived as lower-risk assets, which directly improves their valuation and attractiveness to investors.

Challenge 7. Post-sale risks and obligations

Many sellers treat closing as the final step, but in practice, risks remain after the business is transferred. Deal terms may include obligations that last for months or even years after closing. Underestimating this stage can lead to financial losses, legal disputes, and restrictions on the seller’s future activities.

What happens after closing

After completion, the seller often remains involved, especially where transition obligations or buyer protection mechanisms apply.

In practice, this may include:

• Transition support obligations
• Non-compete restrictions
• Ongoing liability under warranties
• Potential indemnity claims

In addition, if the deal includes deferred payments or escrow, part of the funds may remain locked until certain conditions are met. This means the final financial outcome is not always fixed at closing and may depend on future events.

How to solve it

The key is to structure post-closing obligations properly during negotiations. Sellers must clearly understand which risks remain after closing and to what extent.

It is important to limit liability under warranties and indemnities by setting clear caps, time limits, and claim procedures. This reduces uncertainty and the likelihood of disputes.

Special attention should also be given to escrow and deferred payment terms. Clearly defined release conditions and transparent criteria help minimize the risk of funds being locked.

Companies that plan the post-sale stage in advance achieve more predictable financial outcomes and avoid prolonged legal conflicts after closing.

How Key2Law helps sell a business safely and efficiently

Selling a business is not just about finding a buyer. It is a complex legal and strategic process where any mistake can reduce value or derail the deal. Without professional support, companies often face issues during preparation, due diligence, and negotiations.

Key2Law team helps owners build a structured and secure sale process, minimizing risks and strengthening their negotiating position. We support transactions at every stage, from pre-sale preparation to closing and the post-sale phase.

Our experts provide professional support for business:

• Assessment of sale readiness and risk identification
• Legal and financial due diligence
• Preparation of documentation and a data room
• Development of sale strategy and valuation
• Buyer search and screening (including AML/KYC)
• Negotiation support and deal structuring
• Preparation of the SPA and related agreements
• Protection of the seller’s interests at closing and post-closing

If you are planning to sell a business, it is essential to define your strategy early and address risks before going to market. Contact the Key2Law team to get professional support and complete your transaction safely, efficiently, and on the best possible terms.